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NBA can shift balance of power in media with rights deal

Jimmy Butler #22 of the Miami Heat dribbles against Jamal Murray #27 of the Denver Nuggets during the fourth quarter in Game Five of the 2023 NBA Finals at Ball Arena on June 12, 2023 in Denver, Colorado.

Justin Edmonds | Getty Images Sport | Getty Images

The National Basketball Association’s upcoming decision on which companies will acquire the TV and streaming rights for its live games could transform the entire media industry.

Based on preliminary discussions between media executives and league officials, Comcast‘s NBCUniversal, Google‘s YouTube TV, Amazon, Apple and even Netflix may challenge or join the incumbents as rights holders, according to people familiar with the matter, who asked not to be named because the discussions are private. Spokespeople at NBCUniversal, YouTube, Amazon, Apple and Netflix declined to comment.

Every media rights renewal for the NBA is an important event because it only happens about once a decade. The last rights deal was announced in 2014. The NBA’s current rights deal ends after the 2024-25 season.

All expressions of interest between media partners and the NBA have been preliminary because league officials can’t officially negotiate with interested partners until April, when the league’s exclusive negotiating window with incumbent media rights partners Disney and Warner Bros. Discovery ends.

But with the National Football League’s media rights locked up until 2033, the NBA has a unique opportunity to play media kingmaker. Live sports have continuously increased in value for decades as advertisers clamor for live events where commercials can’t be skipped. The NBA will likely get a significant increase on its new media deal. Former ESPN head John Skipper predicted earlier this year the league could get between 200% and 350% more in its new agreement.

“Our next set of media deals will help shape the future of our league and how fans consume NBA basketball for years to come,” an NBA spokesperson said.

Rise of ad-supported streaming

Netflix’s potential interest in the NBA could be industry-shaking. Co-CEO Ted Sarandos has repeatedly said Netflix hasn’t encountered a viable path to carrying live sports that would appeal to its shareholders.

“We’ve not seen a profit path to renting big sports,” he said in December.

But Sarandos has recently softened his stance from disinterest in the NBA to potential interest, according to people familiar with the matter. What that means is still unknown. It’s unlikely the NBA would hand over its largest package of streaming games to a provider that’s never had experience with live sports, said the people.

Netflix has contemplated buying sports rights before. The world’s largest streamer unsuccessfully bid for live Formula 1 racing rights last year.

Netflix’s Ted Sarandos attends the 92nd Annual Academy Awards in Hollywood, California, Feb. 09, 2020.

Jeff Kravitz | Getty Images

But the biggest change for Netflix is the company’s push to add customers to its advertising-supported tier, which launched in November. About 5 million subscribers had signed up for its ad tier, which costs $6.99 per month, Netflix announced in May.

Netflix said earlier this year it makes more money off subscribers who select the cheaper ad-supported tier than its $15.49 standard tier, which doesn’t include advertising. The average revenue per user, or ARPU, for the advertising tier would likely rise even more if Netflix added a package of NBA games, which would command premium-priced ad rates unlike anything currently on Netflix’s service.

Disney and Amazon have also adjusted their streaming offerings to account for the media industry’s recent revelation that there’s enough digital advertising demand to push ARPU just as high as or even higher than their higher-priced no-ad subscription products. Disney is increasing its ad-free pricing on Disney+ by 27% later this month while keeping the price of ad-free Disney+ stagnant. Amazon plans to inject commercials into its previously ad-free Prime Video in 2024.

The NBA would be a particularly valuable addition to an ad-supported streaming service because its season runs from October to June, including playoffs. That’s an effective churn reducer for fans, who won’t be able to binge-watch a season of live games like they do with on-demand entertainment series.

Global reach

Netflix sells an ad-supported plan in Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, the United Kingdom and the United States.

That global reach is appealing for the NBA, which features an assortment of international stars, including Slovenian Luka Dončić of the Dallas Mavericks, Serbian Nikola Jokić of the NBA champion Denver Nuggets and French rookie Victor Wembanyama of the San Antonio Spurs.

It’s also possible the league could decide to maximize its domestic reach by striking a new deal with NBCUniversal, which has both a broadcast network and a streaming service, Peacock, that could serve as homes for live games. NBC has a nostalgic relationship with fans, dating back to the Michael Jordan-dominated days of the 1990s’ “The NBA on NBC.” CNBC first reported NBCUniversal’s interest in again airing NBA games earlier this year.

Still, Peacock has just 24 million subscribers, fewer than Disney’s ESPN+ or Warner Bros. Discovery’s Max, and is only available within the U.S.

Victor Wembanyama, now a rookie with the San Antonio Spurs, in action with his French team, Metropolitans 92, on April 8, 2023, in Levallois-Perret, France.

Aurelien Meunier | Getty Images

Broadening reach is important to league officials, who are intrigued by Google’s YouTube TV as a potential streaming partner, according to people familiar with the matter. YouTube TV struck a deal to be the NFL’s exclusive “Sunday Ticket” provider earlier this year. NBA executives have been impressed with the production quality and user experience, said the people.

While YouTube TV, a subscription bundle of linear channels a la traditional pay TV, is only available in the U.S., the league already has an existing global partnership with YouTube that includes providing highlights, game recaps, full-length games and produced segments. YouTube has more than 2.7 billion global monthly active users and can market the sport to a younger audience than Amazon or Apple can do with their subscription services. The average age of an NBA viewer is 49, and 26% of viewers are under 35, according to Nielsen.

Between Amazon and Apple, league officials are currently more comfortable with choosing Amazon as a potential streaming partner, according to people familiar with the matter. Amazon has proven to the NBA it is serious about making a large investment in live sports, including its $1 billion per year contract to carry “Thursday Night Football.” While Apple has deals to carry Major League Soccer and “Friday Night Baseball” for Major League Baseball, the NBA isn’t convinced Apple will prioritize marketing the league’s games in the same way other streaming services might. Apple TV+ has never disclosed how many subscribers it has.

Apple will have a chance to make its pitch directly to the league if and when the NBA begins discussions with other partners after its exclusive window with incumbents expires. It’s possible Apple or Netflix could get a smaller package of games from the NBA as a test run for a future larger partnership. Still, that would run counter to the league’s preference to limit the number of packages it wishes to dole out.

Carving up the pie

ESPN reportedly approached NBA, NFL and MLB about strategic partnership

The NBA will have to balance demand against restricting supply to maximize the price for rights. The league probably wants to have just two or three media partners to serve broadcast, cable and streaming eyeballs, according to people familiar with the matter.

Spreading packages between too many media partners will potentially confuse and annoy consumers, who will need to sign up for multiple services and then find where games are streaming on a given day. Currently, an NBA game could appear on Disney’s ESPN or ABC, Warner Bros. Discovery’s TNT, NBA TV, NBA League Pass or a regional sports network. Add new streaming services to the mix, and consumers could easily become overwhelmed with options.

Likewise, if the NBA doesn’t reach a new deal with either ESPN or TNT and goes in another direction, it may accelerate the deterioration of the cable bundle — as live sports is one of the last pillars keeping it alive.

The league hopes to mitigate some of this complexity by marketing its NBA app and NBA.com as digital “front doors” to discover content, according to people familiar with the matter. The league hopes to get fans in the habit of first opening the app or NBA.com before being directly ported to a streaming service that’s broadcasting the game or potentially staying and watching games in-app, depending on partnership arrangements. This is a similar concept to what ESPN has considered, as CNBC reported earlier this year.

Disclosure: Comcast-owned NBCUniversal is the parent company of CNBC.

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